Financing a stigmatized property

You never really know what you’re getting into when you’re buying a house. To some extent, even with the best home inspection and a seller who abides by your province’s property disclosure laws, you don’t always know what’s behind walls, you don’t always know the true nature of your neighbours, you don’t always know the history of the home. It’s a bit of a leap of faith.

Some reservations may be because of physical considerations, where others may be due to more ethical or personal considerations that may or may not have an effect on the fair market value of the home or make the home difficult to sell later down the line. The latter are not known as defects, but as stigmas.

Stigmatized property

Requirements surrounding stigmatized property vary by province.

The Real Estate Council of Ontario (RECO) defines stigma in the context of real estate as being “a non-physical, intangible attribute of a property that may elicit a psychological or emotional response on the part of a potential buyer.” Because it is intangible, though, that makes it even harder to determine what should be disclosed, since something that may not be a concern to one person is a deal breaker for another. In fact, the Real Estate Council of BE (REBC) and the Real Estate Council of Alberta (RECA) acknowledge that it’s impossible to disclose to a degree that would treat everyone fairly, so they put the onus on the buyer to find out whatever it is that they want to know that goes beyond the physical condition of the property.

Quebec tends to be the most strict when it comes to disclosure laws around stigmatized properties. In 2012, Quebec passed a law that requires sellers to report when a person has died an unnatural death on their property. All other provinces remain in the “if not asked, don’t tell” camp of disclosing murders or suicides on their property upon sale. Legally, anyway.

Ethically, however, is a different story.

There are plenty of stigmas that may affect whether or not someone wants to buy a home, including, but not limited to, suicide, homicide, reported hauntings, and close proximity to graveyards and/or cemeteries. Depending on the province, realtors are held by ethical standards that say they have to disclose factors that may deter a buyer from purchasing a property. According to the Ontario Real Estate Association (OREA), for example, there is no legislation or case law in Ontario to suggest that a seller, or his or her representative, is required to disclose the existence of stigmas to buyers. Realtors do, however, have an ethical obligation to disclose information to a buyer if they are acting on the buyer’s behalf. In other words, if a realtor is researching property for a client and finds out that there has been a murder on the premises, he/she has to tell the potential buyer.


One thing that it does matter is whether or not your prospective home was used as a grow-op, an indoor illegal marijuana growing operation. Some provinces require grow-op disclosure, others only require it if the property hasn’t been professionally remediated. Sometimes this information is searchable in local police databases, but this isn’t always available and even when it is, it only covers the grow ops that were discovered.

Mandatory disclosure rules reflect the fact that the conditions necessary to grow marijuana in a home environment can greatly damage the space. These conditions include a warm, humid environment, which encourages the growth of black mould and can cause wood to buckle and warp; ventilation requirements that could have required industrial-sized fans to be installed into walls; pesticide contamination; and improperly wired/altered electrical cables to bypass the existing hydro meters.

While cosmetic damage can be covered immediately, true remediation of the house – repairing it to a safe state – could cost in the tens of thousands of dollars. Grow-ops must be disclosed not only because of the stigma attached to them, perhaps changing the potential buyer’s perspective of the neighbourhood, but also because it could be a real deal-breaker for the buyer, who may not be able to afford the remediation. Homes that have been used as grow ops usually do have material latent damage to the home, which would require disclosure in most locations anyway. And that’s only the physical damage; the health concerns could persist for years to come if a grow-op hasn’t been remediated properly.

Buyer and seller perspectives

Disclosure requirements for a property aren’t just limited to the previous owner; if something has to be disclosed, it will always have to be disclosed. So if you decide to buy a property regardless of the stigma attached to it, you’ll have to disclose for the next buyer, and they’ll have to do so for the next (depending on the particular stigma if asked). It may not seem fair, especially if you’ve done any proper remediation yourself. Some things, however, like murders or suicides, can never be changed, and could make sellers think twice before paying a certain amount for their “dream” home. Other argue that some required disclosures are unnecessary; It’s one thing if the home itself is damaged or in disrepair, but if that issue was fixed a decade ago, and the home was declared safe and habitable in the years since, why would it be required?

In the end, the buyer calls the shots with a stigmatized property, even in a hot real estate market. And since it’s really on the shoulders of the buyers when it comes to stigmatized issues apart from grow-ops, then buyers should ask directly about anything that would be a deal breaker for them; as mentioned, particular issues that may be a deal-breaker for one person aren’t going to be a problem for the next person, so if you’re concerned about homicides, for example, ask the seller whether or not any took place in the home. If you ask directly, they aren’t supposed to lie about it, although they are certainly allowed to refuse to answer (which should tip you off, or at least give you pause as to why they refused).

If you’re looking for a deal, however, then some of these things that maybe scare people or make them hesitate when buying a property would be a good opportunity for you. In some cases, stigmatized properties can affect the sale price of a home in the buyer’s favour.

Financing a stigmatized property

Even if you have no issue with buying a stigmatized home, you may end up paying more for it. Stigmas such as deaths or hauntings don’t tend to have financing issues, while grow-ops are a different story. Regardless of the sale price of the property, dealing with an “A” lender when purchasing a grow-up can be a no-go. These lenders don’t want to give you a mortgage on a property, partly because they know that that property can be harder to unload if you default on your mortgage and they have to sell it. So if you want to buy a former grow-op, then you may have to look around for alternative lenders who will give you a mortgage, lenders who tend to have higher interest rates. While you may have scored a deal on the purchase price of the property, you may end up paying more for the mortgage overall because of that higher interest rate. Even lenders that don’t shy away from houses that were former grow ops will only do so if fully remediated, and even remediated properties can prove difficult when it comes to getting home insurance, which can be yet another hurdle for financing.

That’s not to say that you should take stigmatized properties off the table during your home search. Just know that, depending on the issue, the difficulty may not stop when you find the home that you want.

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